September 23 rd – 24th, 2013 Sarova Stanley, Nairobi Dr. Tonny K. Omwansa Prof. Timothy M. Waema School of Computing and Informatics University of Nairobi Deepening Financial Inclusion through collaboration to create innovative and appropriate financial products for the poor 2 nd Annual Kenya Bankers Association Banking Research Conference
Presentation during the 2nd annual Kenya Bankers Association conference. Extending banking through crossing of borders.
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September 23rd – 24th, 2013Sarova Stanley, Nairobi
Dr. Tonny K. OmwansaProf. Timothy M. Waema
School of Computing and InformaticsUniversity of Nairobi
September 23rd – 24th, 2013Sarova Stanley, Nairobi
Dr. Tonny K. OmwansaProf. Timothy M. Waema
School of Computing and InformaticsUniversity of Nairobi
Deepening Financial Inclusion through collaboration to create innovative and appropriate financial products for the
poor
2nd Annual Kenya Bankers Association Banking Research Conference
OutlineOutline
1. Introduction2. Review of related literature3. Description of data4. Lessons and conclusions
BackgroundBackground
• World– Almost 1/2 live on less than $2 a day– About 1/2 don’t have a bank account
• Kenya– 2009, about 59% adult population completely excluded/informal methods.– financial inclusion is at the core of vision 2030– numerous achievements make Kenya a world example– we must stay ahead: innovate further
• Financial access– increase in formal financial services has effect on poverty traps. – Conventional: reduce costs, mobilize savings & encourage investments – to the poor: make appropriate & affordable
BackgroundBackground
• ‘Innovative modes of financial services delivery can have a transformative effect on poor households’
• Innovation– ability to identify good ideas – thought leadership skills to
• enhance• drive the relevant change • Facilitate collaboration and
– ability to drive to tangible economic, academic, social or political results
• Financial Inclusion: – Ability of an individual, household, or group to access appropriate financial
services or products.
ObjectivesObjectives
Demonstrate that one promising strategy to deepen financial inclusion at BoP is through collaboration between strategic partners who would develop and execute innovative and appropriate financial solutions to this segment.
Discuss some challenges to achieving appropriate financial products
– 2006-2009, access to formal financial services rose from 26.3% to 40.3%
– Agency banking commissioned April 2010 rapidly grew to 17,000 by March 2013
FinAccess
Innovation for Financial InclusionInnovation for Financial Inclusion
– Reaching BoP using mobile technology generates enthusiasm– Financial services outside conventional branches now common– 10% growth is undoubtedly attributed to M-Pesa
Choice of remittance channel between 2006 and 2009, FinAccess 2011
Use of money transfer options in 2006 and 2009, FinAccess 2011
Journey to Cash-LiteJourney to Cash-Lite
Better than Cash AllianceOur opportunity
Cash-Lite BarriersCash-Lite Barriers
Our opportunity
Low adoption at rural and BoPLow adoption at rural and BoP
• Characteristics: Lower literacy levels & Lower access to information• Income is low, irregular & unpredictable• Late and slower adopters of technological innovations
Access strands by Finaccess
The poor and their financial livesThe poor and their financial lives
• They live sophisticated financial lives– save, borrow, lend & prepare for rainy days
• USD 2 per day is an average– some days they earn USD 5, other days no income
• Their level of uncertainty is high
• Live less healthy lives, stay in less secure places & face income volatility
Adoption drivers to design principlesAdoption drivers to design principlesPerformance
Expectancy
Reliability
Social Influence Convenience
Perceived Trust Missing
Transaction Cost Cost
Facilitating
Conditions
Flexibility & StructureOmwansa, T. (2012)
Johnson et al. (2012)
Provider willingnessDesign of the solutions by third party enterprises
Design/adoption features are barriers?Design/adoption features are barriers?
Flexibility Structure Cost
Performance
Expectancy
Social
Influence
Facilitating
Conditions
Facilitating
Conditions
Cost
Partnerships/Business models for BoPPartnerships/Business models for BoP
financial Institution
(custodian)
Mobile Money Provider(channel)
Social Entrepreneurs
(solutions for BoP)Appropriate
financial product
BoP Consumer
Interacts with consumers
through agentsNo one partner is
Going to do it all well alone
Research organizations,
Universities etc.
Findings and Discussions
Flexibility and StructureFlexibility and Structure
Incubation of business ideas
Collaboration with research & academic institutions
Platforms facilitating collaboration between start-ups, MNOs, Financial Institutions etc
Taskforces on financial inclusion for BoP.
Transaction CostTransaction Cost
• Ability to pay: Costs are high for low value transactions• Willingness to pay: For ‘lack’ of options, they will pay• Every transfer, however small attracts fees
Amount (KSHs) To subscriber &
withdraw
% of total amount To non subscriber
& withdraw
% of total
amount
50 15 30 NA NA
100 15 15 NA NA
200 54 27 93 46.5
500 54 10.8 93 18.6
700 60 8.6 93 13.2
1000 60 6 93 9.3
• 150,000 new businesses
• 740,000 people moved out of poverty
• Over 200,000 pumps sold
• M-Pesa mobile layaway program reduces payment period (12 to 3 months)
• Uses sales agents, SMS reminders and SMS updates to keep customers close
M-Shwari, KickStart Mobile Layaway, M-Kesho, Mbao Pension,Angaza Design, M-Bima, Indigo pay-as-you-go solar, M-Kopa, Bridge International Academies, Grundfos Lifelink, Musoni...
Mobile layaway program to purchase a water pump
Provides high quality primary education at low cost•KShs. 320 per month per child
•20,000+ school children
•Fees paid by MM, service providers paid by MM
•Largest single M-Pesa client
Cash-less micro finance
(‘M’ for Mobile and ‘Usoni’ for future)
Uses 100% mobile money (M-Pesa) for loan disbursement and repayments•Enables cash-less microfinance operations•1st loan in May 2010, 160M+ lent with 100M+ outstanding loan balance, 500,000+ borrowers, over 10,000 loans •To clients: Faster turn around, zero paper work, more convenience•To Musoni: Lower risk, less paper work, better customer service, easier and more accurate transaction tracking
We are focused on innovating, incubating and creating new
opportunities for its membership.
Prepaid (MM) off-grid energy
Make life-changing energy solutions affordable to low income customers•Embedded micro-payments to the solar technology•Piloted from October 2010. •Commercial sales started 8th June 2012•Roll out considered a success
Lessons from the synergiesLessons from the synergies
• BoP are accumulating savings• Meaningful sums to acquire assets/services• Technology is an enabler• Innovation is 1% inspiration, 99% perspiration – execution is key
• Structure: • targets are clear• regular progress updates by SMS• Reminders not to default by SMS• Phone call & face to face follow ups
• Flexibility: • Ability to pay whatever amount at whatever time• Negotiations allowed when customer likely to default
• Transaction cost: • Absorbed by 3rd party &/or consumer
Lessons from the synergiesLessons from the synergies
• Current partnerships• Mostly between MNOs and 3rd parties• Each party focuses on their strengths• 3rd party is the face of the product• Savings translate to specific service/product that BoP need
• Consumers• Appreciate the value of MM more when bundled with other
relevant product• Appreciate convenience more than security• Trust plays a key role, especially in the 3rd party who is the face• Face to face interactions, personalized reminders were greatly
appreciated• Challenges of water, energy, education, agriculture, housing,
transport, healthcare etc form a basis for collaborations
ConclusionConclusion• Partnership key for reaching BoP
• Providing appropriate and innovative financial products • Not likely to be achieved by one player• Partnerships challenges:
• BoP financial solution must be appropriate• Design features must be incorporated• Trust must be developed and sustained• Transaction costs need to come down• Innovating is hard work and the price has to be paid
• BoP users need MM• More importantly as a means not an end• MM then becomes a platform• Likely to increase savings & change behaviour towards cash-lite
Thank you!
Dr. Tonny K. OmwansaSchool of computing and informatics